Suppose the production of paved roadways can be represented as q = L⁰.⁵ + K⁰.⁵.Which of the following statements is (are)TRUE?
A) Labor is subject to diminishing marginal productivity in the short run.
B) Labor and capital are imperfect substitutes.
C) The isoquants for paved roadways are convex.
D) All of the above.

Question

Quizplus · Accepted Answer

A) Labor is subject to diminishing marginal productivity in the short run since the production function exhibits a decreasing marginal product of labor.
B) Labor and capital are imperfect substitutes because the production function has exponent 0.5 for both inputs, meaning that a percentage change in each input does not result in a proportional percentage change in output.
C) The isoquants for paved roadways are convex since the production function exhibits decreasing marginal products of labor and capital, which makes it easier to substitute one input for another as the mix of inputs changes.

Suppose the Production of Paved Roadways Can Be Represented as Q